How To Protect Mortgage Borrowers – And How Not To

Feb 15, 2023 

I have been a strong advocate of the Consumer Financial Protection Bureau (CFPB) from its inception, but a recent measure that targets multi-lender web sites (MLs) are more likely to damage than protect mortgage borrowers.

There are two approaches toward protecting mortgage shoppers dealing with multi-lender web sites. One approach, the one deployed by CFPB, is directed toward referral fees charged by MLs. The second approach, ignored by CFPB, is directed to the pricing systems deployed by the lenders using MLs. These are considered in turn.

CFPB on Referral Fees

The claim is that the ML sites favor the lenders that pay them the highest referral fees. In the recent statement of CFPB Director Rohit Chopra:

“Currently, many mortgage shoppers are at risk of being manipulated by comparison-shopping platforms. In some cases they are just presented with a list of companies from which the platform operators extracted the requisite kickbacks… Platforms sometimes will also simply hand off a shopper to the highest bidder.”

This statement fails to identify, or even recognize, mortgage shopping sites that don’t charge lenders referral fees. Readers will understand my feelings about that because and are my shopping sites and they have no referral fees — or any other fees. The requirement for lenders to participate is that they post their prices and qualification requirements on my sites every day, and require participating lenders to abide by fair lending rules, which are discussed below.

I am not going to defend other sites that do charge referral fees, one or more of them might be pursuing illegal acts that are cited by the CFPB director. But the director does not identify any such malefactors, thereby casting suspicion on them all. That is not fair and it does not help consumers.

I looked in vain for indications of what CFPB would consider acceptable pricing rules and disclosures for MLs. The rules cited below that apply to my sites would work for the others, with the additional requirement that any referral fees be posted and uniform across lenders. Then the CFPB could do something that would really help mortgage borrower: posting the fee structures of all ML sites on the CFPB site.

While eliminating referral fee abuses by MLs would be useful, it will do nothing to curb abuses by the lenders using those sites. If CFPB identified MLs that were compliant with rules governing referral fees, it could also identify those that require their participating lenders to meet fair lending rules – which is the case with my sites.

Curbing Lender Abuses on Multi-Lender Sites

The lenders on my site are identified as Certified Network Lenders (CNLs) and they are subject to fair lending rules. The following are a few of the rules:

CNLs Provide a Best Price Guarantee: The prices posted by each CNL are as low or lower than those offered by that CNL directly to borrowers through any other channel.

CNLs Disclose Complete Price Data: This includes interest rate, points, origination fees, and all fixed-dollar fees. On each ARM that they offer, CNLs must provide the rate index, current index value, margin, rate adjustment caps and maximum and minimum rates.

CNLs Upon Locking a Loan Must Provide a Lock Confirmation Statement That Includes the Following:
    1. Product Type
    2. ARM detail (margin, index value, adjustment caps, max/min rate)
    3. Loan amount
    4. Interest rate
    5. Points
    6. Other lender fees
    7. Mortgage insurance premium - upfront or monthly
    8. Lock expiration date

CNLs That Do Not Lock Immediately Must Adhere to the “Twin Brother Rule”: That rule states that the price locked will be the price the lender would quote on the same day on the identical transaction to the borrower’s twin requesting a price quote. This rule implies that if the market price decreases before the price quoted to the borrower can be locked, the CNL will lock the lower price. If the market price increases before the price quoted to the borrower can be locked, the CNL will not lock until explicitly authorized to do so by the borrower.

CNLs That Over-ride a Price Lock Because a Property Appraisal Alters the Pricing Must Play it Both Ways: If the appraised value is higher by enough to lower the price, the borrower receives the benefit of it.

CNLs That Fail to Close Within the Lock Period Will Extend the Period at No Cost to the Borrower: If the borrower is primarily responsible for the failure to fund, the CNL may charge a fee for a lock extension, but must post that fee. If the CNL and borrower disagree on who was responsible for the failure to fund, the CNL agrees to accept the judgment of the professor.

Concluding Comment

The home mortgage is the most complicated instrument that consumers encounter and the most difficult for them to navigate without overpaying. The optimal solution is the multi-lender web site subject to mandatory disclosure of all fees paid to participating lenders, and with the sites required to monitor them for conformity to fair lending rules. CFPB has a way to go.

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